AFN reported GAAP net income attributable to common stockholders for the three-months ended June 30, 2009 of $373.7 million, or $6.21 per diluted common share, as compared to net loss attributable to common stockholders of ($81.2) million, or ($1.36) per diluted common share for the three-months ended June 30, 2008. AFN's net income for the three-month period ended June 30, 2009 was primarily attributable to the operations of consolidated securitization entities and includes net changes in the fair value of financial instruments of $577.4 million, partially offset by loan loss provisions of ($49.7) million. During the three-months ended June 30, 2009, these amounts were reduced by $168.2 million of net income attributable to noncontrolling interests associated with our consolidated CDO entities.

AFN reported GAAP net income attributable to common stockholders for the six-months ended June 30, 2009 of $337.8 million, or $5.61 per diluted common share, as compared to net income attributable to common stockholders of $3.7 million or $0.06 per diluted common share for the six-months ended June 30, 2008. AFN's net income for the six-month period ended June 30, 2009 was primarily attributable to the operations of consolidated securitization entities and includes net changes in the fair value of financial instruments of $579.5 million, partially offset by loan loss provisions of ($100.2) million. During the six-months ended June 30, 2009, these amounts were reduced by $161.1 million of net income attributable to noncontrolling interests associated with our consolidated CDO entities.

Analysis of GAAP Equity

As of June 30, 2009, our consolidated financial statements include $88.9 million of available, unrestricted cash and cash equivalents. The following table shows the components of our stockholders' equity and the net change in cash and cash equivalents attributable to such components, in each case as determined in accordance with GAAP, as of, and for the three months ended, June 30, 2009. The table is divided between the components of our stockholders' equity which are attributable to our assets and liabilities which are not assets and liabilities of consolidated variable interest entities ("VIEs"), and those which are assets and liabilities of consolidated VIEs. The assets of consolidated VIEs are pledged to satisfy the liabilities of the consolidated VIEs. The liabilities of our consolidated VIEs are non-recourse to us, but similarly we have no rights to use any of the proceeds of the assets held by consolidated VIEs to satisfy any of our recourse liabilities. The components of our stockholders' equity attributable to our investments in consolidated VIEs are determined in accordance with GAAP (under which we consolidate all of the assets and liabilities of the VIEs) and do not reflect the fair value of the interests in the consolidated VIEs owned by us. The Net Change in Cash and Cash Equivalents column reflects the sources and uses of cash during the period with respect to each component of our stockholders' equity.

                                                      Net Change in Cash                                                     and Cash Equivalents                                Allocated Parent       for Three Months                              Stockholders' Equity   Ended June 30, 2009 (C)    (Amounts in thousands)    as of June 30, 2009     Net Assets not Included      in Consolidated VIEs:     Investments in TruPS      debt securities                 $6,604                 $186     Investments in      residential and      commercial loans                 8,568                  493     Cash and cash equivalents        88,922                   99     Other assets and      liabilities, net (A)             2,552               (1,856)(D)     Recourse indebtedness (A)       (76,214)              (2,035)      Net Assets of Consolidated      VIEs (B):     Investments in TruPS CDOs      $412,957                    -     Investments in leveraged      loan CLOs and warehouse      facility                         1,698                2,842(E)     Investment in Kleros Real      Estate (MBS) CDOs                    -                    -     Investment in residential      loan mortgage loan      securitization                 (40,462)               1,527     Total                          $404,625               $1,256    (A) Recourse indebtedness is net of our $1.5 million investment in       common securities of the trusts that issued our junior subordinated       debentures.  The $1.5 million is recorded within other assets in our       consolidated financial statements.    (B) We currently hold the following notional amounts of preference       shares or subordinated interests in consolidated VIEs: $218.6       million in TruPS CDOs, $48.1 million in leveraged loan CLOs, $38.5       million in a leveraged loan warehouse facility, $45.6 million in a       whole-loan mortgage securitization and $90 million in Kleros Real       Estate CDOs.  The Company's stockholders' equity includes the       effects of accounting for each of the underlying assets and       liabilities of our consolidated VIEs as separate units of account.       However, if for accounting purposes the Company were to use the       notional amounts of preference shares or subordinated interests that       it directly owns as the unit of account, its net asset value could       be materially different.  As of June 30, 2009, the Company estimates       the aggregate fair value of its investments in preference shares and       subordinated interests of consolidated VIEs to be approximately $3.3       million.    (C) Primary sources and uses of cash of consolidated VIEs include       interest income on investments and interest expense on the related       debt. The Company's primary sources of cash are distributions from       investments in consolidated VIEs, interest on cash deposits, and       interest income on or proceeds from the sale of debt securities and       mortgage loans held directly.  The Company's primary uses of cash       are recourse debt service, payment of general and administrative       expenses, and additional investments.  The following reconciles the       change in cash and cash equivalents during the three-months ended       June 30, 2009:             Cash and cash equivalents, at March 31, 2009         $87,666           Net change in cash and cash equivalents                1,256           Cash and cash equivalents, at June 30, 2009          $88,922                                                                =======     (D) Amount relates to payment of general and administrative expenses       incurred directly by the Company.  General and administrative       expenses incurred and paid by consolidated VIEs reduce the Company's       net distributions, if any, from these consolidated VIEs and are not       paid directly by the Company.    (E) Amount includes $2.8 million of distributions from investments in       CLOs.  Subsequent to June 30, 2009, we experienced an interest       diversion test failure in Emporia Preferred Funding II, Ltd.  The       failure was primarily attributable to an increase in defaulted       assets collateralizing the CLO.  As a result of the interest       diversion test failure in Emporia Preferred Funding II, Ltd., the       Company did not receive any of its quarterly distribution in July       2009, and assuming no additional defaults or significant credit       downgrades the Company does not expect to receive its quarterly cash       distribution for several quarters.    Liquidity   

Management has evaluated our current and forecasted liquidity and continues to monitor evolving market conditions. Future investment alternatives and operating activities will continue to be evaluated against anticipated current and longer term liquidity demands. Management will continue to consider projections regarding our taxable income and liquidity position and decisions regarding future dividends are subject to the review and approval of our board of directors.

On October 10, 2008, the Company was notified by the NYSE that it was not in compliance with an NYSE continued listing standard applicable to its common stock. The standard requires that the average closing price of any listed security not fall below $1.00 per share for any consecutive 30 trading-day period. On October 15, 2008, the Company notified the NYSE of its intent to cure this deficiency.